Cohen Development Co v. JMJ Properties Inc

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 01-3443

COHEN DEVELOPMENT COMPANY,

an Illinois corporation,

Plaintiff-Appellant,

v.

JMJ PROPERTIES, INC.,

a Michigan corporation,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Central District of Illinois.

No. 00 C 2123—Michael P. McCuskey, Judge.

____________

ARGUED MAY 31, 2002—DECIDED JANUARY 24, 2003

____________

Before HARLINGTON WOOD, JR., COFFEY, and ROVNER,

Circuit Judges.

ROVNER, Circuit Judge. Cohen Development Company

(“CDC”) and JMJ Properties, Inc. failed to jointly acquire

a piece of property in Albertville, Minnesota, on which

they hoped to develop an outlet mall. CDC then sued JMJ,

in part, for breach of a contract that the parties allegedly

had entered into to acquire the land. Following a bench

trial, the district court held that CDC failed to prove

that the parties had entered into an enforceable agree-

ment, and entered judgment in favor of JMJ. CDC appeals,

and we affirm.

2 No. 01-3443

BACKGROUND

1. Facts

CDC, a family-owned business, develops, owns, and

manages shopping centers and hotels. In 1994 Leslie

Cohen, then Executive Vice President of CDC, identified

an approximately 135-acre parcel of property along In-

terstate 94 in Albertville that he thought was the “last

great” site in the Midwest for the development of a retail

outlet mall and complementary development. In January

1995 CDC entered an Option Agreement with the prop-

erty’s owners, Judith and Bernard Roden, that gave CDC

the exclusive opportunity to purchase the property for

$733,848. The Option Agreement initially expired May 1,

1995, but gave CDC the right to extend its option in six-

month intervals through November 1, 1997. After acquir-

ing the option, CDC developed a master plan for the

property under which 60 acres would be developed as an

outlet shopping center and the remaining 75 acres for

complimentary retail, light industrial, and warehouse

use. Because, as Cohen testified at trial, CDC policy was

to develop shopping centers on a nonrecourse basis, that

is, without personal financial liability to CDC’s principals,

he was interested in finding a partner to develop the out-

let portion of the property.

A. The Parties’ Original Purchase Agreement

In September 1995 Cohen attended a semiannual con-

vention held by Value Retail News (“VRN”), an industry

trade organization for developers of outlet malls, where

he was introduced to James Morse, Jr., the president of

JMJ. Cohen and Morse discussed CDC’s interest in “flip-

ping” or selling 60 acres of the Roden property for the

development of a retail mall while retaining the remain-

ing 75 acres. Morse and Cohen reached a handshake deal

for CDC to sell 60 acres to JMJ once it acquired the Roden

No. 01-3443 3

property, and on October 24, 1995, CDC and JMJ executed

a Purchase Agreement memorializing their understand-

ing. Under the Agreement, which was valid for one year,

JMJ agreed to purchase from CDC 60 acres of the Roden

property for $1,050,000, subject to certain contingencies,

and to pay CDC earnest money of $5,000 per month dur-

ing the term of the Agreement. The parties amended the

Agreement in March 1996 to provide that JMJ would

by July 1, 1996, designate specifically in writing the land

it would purchase (that designation was necessary be-

cause at the time the Agreement was signed, CDC and

JMJ had allowed the boundary of the 60 acres to “float”

within the entire 135-acre parcel due to wetland mitiga-

tion issues). In August JMJ identified the parcel it would

purchase.

During 1996 JMJ attempted to pre-lease space in the

outlet mall (before developers begin construction on a

mall, they prefer to have 50-70% of the planned store space

pre-leased). Leasing progressed slowly, however, and in

June and July 1996 Morse and Cohen discussed extend-

ing the Purchase Agreement so that JMJ would have

extra time to market the property. At another VRN con-

ference in the fall of 1996, Cohen presented to Morse a

second amendment to extend the Purchase Agreement.

Morse reviewed the draft with his attorneys but rejected

it in a November 11 letter to Cohen because the changes

and additions it made to the original Purchase Agree-

ment were “too substantial to consider.” Around this time

Cohen also met with the Rodens to try to extend the Op-

tion Agreement beyond November 1997, but they re-

fused. JMJ and CDC failed to agree to an extension of

the Purchase Agreement, and it expired in November

1996. Although CDC and JMJ continued to negotiate after

the Agreement expired, CDC also explored options with

other developers to purchase the Roden property. Over-

tures made in January 1997 to Insignia Commercial In-

vestments Group, for instance, proved unsuccessful.

4 No. 01-3443

B. The Alleged 1997 Agreement

In a February 1997 telephone conversation, Morse

informed Cohen that the Rodens would not sign another

option agreement with CDC, but he believed they would

do so with JMJ. In an April 3 letter to Morse, Cohen noted

that the Purchase Agreement had expired in November

1996 and stated that “you [Morse] and I have discussed the

potential ways our companies . . . may now be able to

reach a new agreement,” but noted that “each time we

sent you a written agreement, you tell me you have re-

considered the terms of our verbal understanding, have

‘changed your mind’, or otherwise refused to proceed.”

Cohen further asked Morse to “provide to [CDC] a care-

fully considered offer in writing, one with which you are

comfortable,” and stated:

I trust you agree that time is of the essence in deter-

mining, for each of us, the future coarse [sic] of the

development and ownership of this project. I think

we have been most patient in the past several months

in waiting for a formalized agreement, and I do not

see how we can protract this process much further.

Accordingly, I ask that you provide a red-line or sum-

mary of what we can later incorporate into a more

formal written agreement.

On April 8 Morse responded to Cohen’s letter. He ex-

plained that with CDC’s cooperation he could secure a long-

term option on the Roden property, and that the par-

ties would then have what they originally agreed to:

At this point, I believe our best course of action would

be to determine how to secure a longer term option

without either of us losing our previously agreed

upon development interests. This can be accomplished,

however, your full cooperation will be a necessity. Al-

low me to go make the business deal on the land and

No. 01-3443 5

you will have what was originally agreed to, as will

we. The only difference being we have a long-term

option.

Although this letter was written on JMJ letterhead and

contained Morse’s signature, Morse did not sign the let-

ter himself. CDC did not introduce at trial any evidence

to establish who actually signed the letter, although

Cohen testified that he believed it was signed by Morse’s

secretary.

On May 6, Cohen responded to Morse’s letter, stating

that “we have agreed to accept your [April 8, 1997] offer.”

He also summarized his understanding of the deal, which

was that CDC would allow JMJ to reach an agreement

with the Rodens to purchase their property, and JMJ would

then transfer 75 acres and $225,000 to CDC:

It is our understanding that we will allow you to make

the business deal on the property, as you proposed.

In so doing, you and I will each end up with the re-

spective interests previously agreed upon, as follows:

immediately upon your purchase of the property, you

will retain sixty acres for your retail development

and will then convey, or cause to be conveyed to us, to

us [sic] the residual seventy five acres along with a

$225,000 net cash profit.

Cohen testified at trial that in a subsequent telephone

conversation, Morse assured Cohen that they would pro-

ceed according to the understanding outlined in Cohen’s

May 6 letter. After Cohen’s May 6 letter, CDC refrained

from contacting the Rodens to either exercise or extend

its Option, though it did discuss the Roden property with

other developers and investors in case the agreement

with JMJ fell through.

6 No. 01-3443

C. Further Discussions Between JMJ and CDC

in Fall 1997

In September 1997 Morse informed Cohen that JMJ

and the Rodens had agreed to a two-year option agreement

for the Roden property, under which JMJ would pay the

Rodens $20,000 per year earnest money for the right to

purchase the property for $900,000. Morse also told Cohen

that he believed that JMJ owed CDC $225,000 (the net

profit CDC would have realized if JMJ had purchased

the 60 acres for $1,050,000 as contemplated under the

parties’ original Purchase Agreement) and that he wanted

to put a formal agreement together to accommodate a

transaction between JMJ and CDC. In October Morse

faxed a letter to Cohen stating that if all went well, he

would execute the option agreement with the Rodens by

October 10, 1997. He further stated that “of course, simul-

taneous to this, you and I must execute an agreement

whereby you will receive from me 75± acres of the 135±

acres for $1.00.” Morse enclosed a draft agreement for

Cohen’s review, noting that JMJ and CDC had entered

into the October 1995 Purchase Agreement on the basis

of the Option Agreement held by CDC to purchase the

Roden property and that CDC’s Option Agreement was

due to expire on November 1, 1997. It further stated

that CDC and JMJ had “agreed to certain changes in their

prior relationship and certain revisions to their mutual

undertakings” and provided the following terms: 1) CDC

would not seek to renew, extend, or revise its Option

Agreement with the Rodens; 2) JMJ would exert its best

efforts to obtain a new two-year option agreement from

the Rodens, and CDC would transfer its right, title, and

interest in its 1995 Option Agreement to JMJ; 3) JMJ

would waive its right to seek specific performance of the

1995 Purchase Agreement as long as CDC did not de-

fault on any of its terms; and 4) if JMJ successfully exer-

cised an option agreement with the Rodens and acquired

No. 01-3443 7

the 135 acres of property, it would transfer 75 acres of the

property to CDC for $1.00.

On October 24, 1997, Cohen wrote Morse back, stating

that CDC “accept[s] the new agreement for [the Roden

property] which you sent to me.” Cohen did not, however,

sign and return the proposed agreement—rather, he told

Morse that “[t]here remains some minor ‘clean-up’ lang-

uage and exhibits which our counsel will provide in a

follow-up letter next week, all of which will assist your

final revision of our Agreement for immediate signature.”

CDC’s attorneys sent various suggested revisions to Morse,

but no finalized agreement was ever signed by both JMJ

and CDC. On October 31, Cohen sent a letter to the Rodens

advising them that CDC would not exercise its Option

to purchase their land; CDC’s Option expired the follow-

ing day. On November 5, JMJ entered into an option agree-

ment with the Rodens to purchase an approximately 105-

acre portion of their land for $850,000. JMJ exercised the

option in April 1999. It did not sell any of the land to CDC,

but instead developed an outlet mall on the property

without CDC’s involvement.

2. District Court Proceedings

In December 1999 CDC (an Illinois corporation) filed

this diversity suit against JMJ (a Michigan corporation),

Morse (a Michigan citizen), and the Rodens (Minnesota

citizens, who were subsequently dismissed) seeking a

declaratory judgment setting forth the parties’ rights to

the Rodens’ land and asserting that JMJ and Morse had

committed fraud against CDC, breached fiduciary duties

they owed to CDC, and tortiously interfered with CDC’s

8 No. 01-3443

business relationships.1 Morse passed away during the

pendency of the suit. In June 2000 CDC amended its

complaint against JMJ and Morse’s estate (which was

later voluntarily dismissed), substituting a breach of con-

tract claim for the declaratory judgment action.

The district court held a bench trial in November 2000

and granted judgment in favor of JMJ in August 2001. At

trial CDC argued that the exchange of letters between it-

self and JMJ on April 8 and May 6, 1997, evidenced a

valid contract between the parties. JMJ argued that the

parties had not reached an agreement and that the let-

ters did not meet the requirements of the Illinois Frauds

Act, 740 ILCS 80/2. The district court agreed with JMJ,

finding that there was no “final, enforceable written

agreement between [CDC and JMJ that] satisfies the

Frauds Act.” The court concluded that even if the exchange

of letters in Spring 1997 did establish a valid written

contract between the parties, the agreement it contained

was no longer recognized as effective by the parties in

September 1997. In reaching this conclusion, the court

relied upon the communications between Cohen and

Morse in September in which both acknowledged the

need to enter a formal agreement regarding the Roden

property; the court found that these communications re-

flected that neither JMJ nor CDC “believed they had a

finalized agreement at that time.” Thus, the court found,

the evidence showed that JMJ did not intend to be bound

by the Spring 1997 exchange of letters. The court addi-

1

The parties and the district court applied Illinois law in an-

alyzing CDC’s claims, and both parties have argued Illinois law

on appeal. We therefore also apply Illinois law in our analysis.

See Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 662 n.2

(7th Cir. 2002); Brunswick Leasing Corp. v. Wisconsin Central,

Ltd., 136 F.3d 521, 525-26 (7th Cir. 1998).

No. 01-3443 9

tionally concluded that the parties did not reach such a

formal agreement because Cohen never signed the draft

sent by Morse but rather proposed “substantive” changes

to it that were not agreed to by JMJ. Thus, CDC’s breach

of contract claim was barred by the statute of frauds.

The court also rejected CDC’s argument that the stat-

ute of frauds was inapplicable because CDC had fully per-

formed the alleged Spring 1997 agreement by not contact-

ing the Rodens either to extend the Option Agreement

or to exercise its Option to purchase the property. The

court found that any performance by CDC was “complete-

ly illusory” because CDC had continued to pursue a pur-

chase of the property independent of JMJ and had not

contacted the Rodens for reasons other than its supposed

agreement with JMJ.

DISCUSSION

CDC argues that the district court erred in conclud-

ing that its breach of contract claim was prohibited by

the Illinois statute of frauds. It asserts that the district

court wrongly determined that no enforceable written

contract that complied with the statute of frauds existed

between the parties and, in any event, that the statute

of frauds did not apply to the agreement between the

parties. Because the district court rendered judgment

after a bench trial, we review its legal conclusions de novo

and its findings of fact and its application of facts to law

for clear error. See Fed. R. Civ. P. 52(a); Hess v. Hartford

Life & Accident Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001).

A finding is clearly erroneous only when this court “is

left with a definite and firm conviction that a mistake

has been committed.” Bowles v. Quantam Chemical Co.,

266 F.3d 622, 630 (7th Cir. 2001) (citations omitted).

10 No. 01-3443

1. Existence of Enforceable Contract

A. Intent to Enter Contract

CDC first contends that the district court erroneously

concluded that no enforceable contract existed between

itself and JMJ. It asserts that the exchange of letters

in April and May 19972 manifested the parties’ intent to

form a binding agreement and that the court improp-

erly determined that the parties’ subsequent negotiations

in September 1997 to enter a more formal agreement

negated that agreement as a matter of law. Whether CDC

and JMJ intended to enter into a contract is a factual issue

which we review for clear error. Ginsu Prods., Inc. v. Dart

Indus., Inc., 786 F.2d 260, 262 (7th Cir. 1986); see also City

of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir.

1990); Bay Area Typographical Union, Union No. 21 v.

Alameda Newspapers, Inc., 900 F.2d 197, 199 (9th Cir.

1990). To determine whether the parties intended to be

bound by the alleged contract, we look not to the parties’

subjective intent but rather to objective evidence of their

intent. Empro Mfg. Co. v. Ball-Co Mfg., Inc., 870 F.2d 423,

425 (7th Cir. 1989). When parties make a pact “subject

to” the execution of a later agreement, they manifest an

intent not to be bound by the original pact. Id.; see also

Chicago Inv. Corp. v. Dolins, 481 N.E.2d 712, 715 (Ill.

1985).

2

In its brief, JMJ argues that the April 8 and May 6 letters

were not admitted into evidence by the district court and should

not be considered on appeal because they are inadmissible hear-

say. The district court in fact declined to rule on their admissibil-

ity because “even considering [them], CDC has not shown the

existence of a written contract binding on JMJ.” We too need

not address the admissibility of these documents because even

taking them into account CDC fails to show that the district

court committed any error in its decision.

No. 01-3443 11

The evidence presented at trial supports the district

court’s factual determination that CDC and JMJ did not

intend to be bound by the Spring 1997 exchange of let-

ters. First, it is not clear that Morse intended his April 8

letter to constitute an offer to Cohen to enter a contract.

In the letter Morse suggested that Cohen “allow me to go

make the business deal on the land and [CDC] will have

what was originally agreed to, as will [JMJ].” CDC’s as-

sertion that this statement constituted a “specific offer”

reads more into Morse’s words than is reasonable. Morse

prefaced the “offer” with language more indicative of a

willingness to bargain than an invitation to contract,

stating that “I believe our best course of action would be

to determine how to secure a longer term option with-

out either of us losing our previously agreed upon develop-

ment interests.” Furthermore, his “offer” was vague, fail-

ing to set forth any specific obligations the parties would

undertake, and was qualified by language more consis-

tent with an invitation to bargain than an offer to enter

a contract. Rather than asking Cohen to indicate whether

he accepted the terms of the “offer,” Morse’s letter stated,

“Les, the ball is in your court” and “[p]lease give me a call

at your earliest convenience,” indicating that further dis-

cussion was necessary. Cohen thus failed to establish that

Morse’s April 8 letter constituted an offer to contract.

Additionally, the exchange of documents reflects that

both JMJ and CDC intended to enter a formal agreement

setting forth their relationship and respective obliga-

tions with respect to purchasing the Roden property. Be-

fore Morse made his April 8 “offer” to Cohen, Cohen in an

April 3 letter had expressed impatience waiting for the

parties to enter a “formalized agreement” and had invited

Morse to provide “a red-line or summary of what we can

later incorporate into a more formal written agreement.”

Furthermore, although Cohen in his May 6 letter pur-

ported to accept Morse’s “offer,” the parties continued to

12 No. 01-3443

negotiate the terms of a formal agreement until CDC’s

Option expired, further indicating that they had not

reached an agreement in, or intended to be bound by, the

Spring 1997 letters. In light of this evidence, we cannot

say that the district court clearly erred in finding that

JMJ and CDC did not intend for the exchange of letters

to form a binding written contract.

Because we agree with the district court’s finding

that CDC and JMJ did not intend to enter a binding

agreement via their exchange of letters, we need not con-

sider CDC’s argument that subsequent negotiations did

not render that agreement void.

B. Conformity with the Statute of Frauds

CDC also argues that the district court erroneously

concluded that its purported agreement with JMJ did not

conform with the Illinois statute of frauds. It asserts that

even though there was “no single document that was

signed by both parties agreeing to the terms and condi-

tions,” the Spring 1997 exchange of letters sufficiently

enumerated the basic terms of the parties’ agreement. The

Illinois statute of frauds provides that actions regarding

a sale of land are barred unless the land sale agreement

is memorialized in writing:

No action shall be brought to charge any person upon

any contract for the sale of lands . . . unless such

contract or some memorandum or note thereof shall

be in writing, and signed by the party to be charged

therewith, or some other person thereunto by him

lawfully authorized in writing, signed by such party.

740 ILCS 80/2. The writing required by the statute need

not itself be a valid contract, but only evidence of one.

Crawley v. Hathaway, 721 N.E.2d 1208, 1211 (Ill. App. Ct.

1999) (quoting Melrose Park Nat’l Bank v. Carr, 618

No. 01-3443 13

N.E.2d 839, 843 (Ill. App. Ct. 1993)). To satisfy the statute

of frauds, however, a written memorandum must contain

on its face the names of the vendor and vendee, a descrip-

tion of the property sufficient to define it as the subject

matter of the contract, the price and other terms and

conditions of the sale, and the signature of the party to be

charged. Crawley, 721 N.E.2d at 1210 (quoting Callaghan

v. Miller, 162 N.E.2d 422, 424 (Ill. 1959)). A writing can

satisfy the statute even if it is made up of several docu-

ments, such as notes, papers, or letters as long as, taken

together, they contain the required information either

on their face or by reference to other writings. American

Coll. of Surgeons v. Lumbermens Mut. Cas. Co., 491 N.E.2d

1179, 1192 (Ill. App. Ct. 1986).

Even if CDC and JMJ had manifested an intent to be

bound by the Spring 1997 exchange of letters, those let-

ters did not meet the mandates of the statute of frauds.

Most notably, CDC presented no evidence that either of

the letters was signed by an authorized agent of JMJ, the

party to be charged under the contract. See Prodromos v.

Poulos, 560 N.E.2d 942, 946 (Ill. App. Ct. 1990). It is

undisputed that Morse, JMJ’s president, did not sign the

April 8 letter that JMJ sent to Cohen. Although Cohen

testified at trial that the signature “appears to be the

signature of [Morse’s] secretary,” he could not definitively

identify who had signed the document. But even if the let-

ter had been signed by Morse’s secretary, CDC presented

no evidence that she had written authority to sign an

agreement with CDC. See Leekha v. Wentcher, 586 N.E.2d

557, 560 (Ill. App. Ct. 1991) (agent must have written

authority to sign contract for sale of land) (quoting

Prodromos, 560 N.E.2d at 946); Schoenberger v. Chicago

Transit Auth., 405 N.E.2d 1076, 1080 (Ill. App. Ct. 1980)

(person alleging agent’s authority must prove source of

that authority). Additionally, there is no evidence that

Morse ratified his secretary’s action with a signed docu-

14 No. 01-3443

ment referencing the May 8 letter. Prodromos, 560 N.E.2d

at 946. The April and May exchange of letters, therefore,

did not comply with the Illinois statute of frauds and

did not form an enforceable contract, and the district

court did not err in so finding.

2. Applicability of the Statute of Frauds

CDC also argues, albeit in somewhat cursory fashion, that

the statute of frauds did not apply to the agreement be-

tween the parties because it fully performed its obliga-

tions under the contract. CDC asserts that it fully per-

formed because, in accordance with its agreement with

JMJ, it neither contacted the Rodens to seek an extension

of its Option Agreement nor exercised the Option even

though it had the financial ability to do so. The district

court rejected CDC’s argument, finding that any perfor-

mance on its part pursuant to the contract was “completely

illusory” because its forbearance from contacting the

Rodens was induced by forces independent of the con-

tract and because CDC had never intended to use its

own money to exercise the option.

Even if we were to assume that the parties had mani-

fested an intent to contract, we find no error with the

district court’s conclusion that CDC did not fully perform

its obligations. Although the Illinois statue of frauds

does not apply to bar enforcement of a contract that has

been completely performed by one party, B and B Land

Acquisition, Inc. v. Mandell, 714 N.E.2d 58, 62 (Ill. App. Ct.

1999), that party’s performance must be done “in reli-

ance upon the agreement.” Thilman & Co. v. Esposito,

408 N.E.2d 1014, 1021 (Ill. App. Ct. 1980); see also

Anastaplo v. Radford, 153 N.E.2d 37, 43 (Ill. 1958); Kane

v. Hudson, 112 N.E. 683, 684-85 (Ill. 1916) (“It is indis-

pensable that the acts done in performance of the con-

tract shall be referable to the contract alone, and to have

No. 01-3443 15

been done in performance of it.”). The evidence adduced

at trial supports the district court’s finding that CDC’s

alleged performance under the terms of the contract

was illusory. Although CDC did not contact the Rodens to

obtain an extension of its Option after the April and May

1997 exchange of letters with JMJ, the evidence shows

that its forbearance was not motivated solely by the al-

leged contract. Cohen testified at trial that he knew as

early as January 1997 that the Rodens would not extend

the Option with CDC, and that in February he knew

that the Rodens “would not under any circumstances ex-

tend its option with” CDC. Thus, Cohen was aware even

before the Spring 1997 exchange of letters that any at-

tempt to contact the Rodens to extend the Option would

be futile. Under these circumstances, the district court

did not err in finding that CDC’s failure to contact the

Rodens after May 1997 was not based solely on the con-

tract and constituted illusory performance.

Similarly, we find no error with the court’s conclusion

that CDC’s failure to exercise its option after the Spring

1997 exchange of letters was not motivated solely by the

purported contract. As the court noted, CDC continued to

pursue ways to exercise its Option even after agreeing to

let Morse make a deal with the Rodens. For example,

although Cohen testified at trial that CDC had the finan-

cial ability to exercise the Option if it wanted to, the rec-

ord also supports a finding that CDC did not find an

acceptable way to finance the property. Although Cohen

explored obtaining a mortgage from Best Choice Mortgage

of Minneapolis, he testified at trial that he ultimately

did not pursue the mortgage because it would not have

allowed him to proceed “in a manner that was acceptable

to the company at the time.” From this evidence the dis-

trict court could reasonably have determined that CDC’s

failure to contact the Rodens or exercise its Option was

not based on its alleged contractual promise to JMJ and

16 No. 01-3443

constituted merely illusory performance. Accordingly we

find no error with the district court’s conclusion that

CDC did not perform all of its obligations under the con-

tract and that the statute of frauds barred CDC’s breach

of contract claim.

CONCLUSION

For the reasons set forth above, we AFFIRM the judg-

ment of the district court.

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—1-24-03